19% overdraft rates at the banks we own

Banks are 'fleecing' their most cash-strapped customers by charging record overdraft rates.

Interest: RBS, 84% owned by taxpayer, and NatWest are worst

These hit a new high last month, averaging 19.1%, despite the Bank of England keeping interest rates at a 300-year low.

The worst offenders were NatWest and Royal Bank of Scotland, part of the RBS group in which the taxpayer holds an 84% stake. Both charged overdraft rates on a range of current accounts of well over 19%.

The August average is 38 times higher than the base rate of 0.5%, which means the banks are cashing in every time one of their customers falls into the red.

If account holders exceed their overdraft limit they face further penalties in the form of fees and even higher rates.

The idea that banks are profiting from the money troubles of their customers will anger many, who feel that they would not be in the red but for the recession caused by the banks' reckless behaviour.

In addition, margins on other services such as credit cards, loans and mortgages have soared while high street banks have enjoyed a surge in profits to £15bn in the first six months of the year. The overdraft details were released on the day the Bank of England decided to keep the base rate at the record low for the 18th consecutive month.

Last night Eddy Weatherill, of the Independent Banking Advisory Service, said banks are 'fleecing their customers'.

He said: 'Banks have been allowed to increase their margins despite the bank rates being so low. There is no incentive for them to do otherwise.
The level of profiteering is completely out of control. Nothing about it is fair or reasonable.

'We face reduced incomes and increase household bills and yet again the banks are compounding our misery. We bailed them out but they have no qualms about making matters worse in our hour of need.

'The Government should introduce a cap on the rates. But instead it protects the banks at our cost.'

The average overdraft rate of 19.1% was identified by financial information firm Moneyfacts. It is the highest figure since records began in 1995.

In addition to the low base rate, the interbank lending rate known as Libor - the rate at which banks borrow from each other - is hovering at around 1.5%. This highlights the size of the profit margin on overdraft interest .

Michelle Slade of Moneyfacts said: 'Overdrafts customers are an easy target for banks. While the majority of customers use an overdraft as a buffer facility, some have no alternative but to push their overdraft to the limit every month.

'It is those customers that will be hit hardest by increases, which will only serve to make a bad financial situation worse.'

Andrew Hagger, money analyst at Moneynet.co.uk, said: 'The timing is not good for the public. In fact, it couldn't be worse. People are already facing hard times due to job losses, pay freezes and cuts in hours.

'Now is when they need to rely most on their overdraft. Banks are exploiting them.'

The Bank of England is under pressure to launch a new round of quantitative easing, pumping billions of pounds into the financial system. To date it has issued an extra £200bn in the hope it will be loaned on fair terms to consumers and businesses.

However, there are concerns that the banks are lending the cash out at extortionate interest rates to boost their profits .

They may to do this because the Government has not sought to put a cap on their profit, and the recession has created a constant supply of customers with no option but to go into the red.

The Bank of England's decision to hold the base rate at 0.5% comes against the background of concerns of a double-dip recession and the impact of massive public spending cuts to be announced by the Government next month.

Many analysts believe that the only way the UK economy can be protected against falling back into recession will be for the base rate to be held at 0.5% for years to come.

Andrew Goodwin, senior economist at the Ernst & Young ITEM Club economic forecasting group, said: 'Assuming that the Government tightens fiscal policy as planned, we expect bank rate to remain at 0.5% for several years.'

There was better news for those hoping to take out a mortgage, with rates on tracker deals with a 25% deposit falling from 3.72% in July to 3.55% in August. Five-year fixed rate deals also got cheaper, dropping from 5.24% to 5.1%.